401(k) Mutual Fund Fees Continue Downward Slope

Following a long-running trend, the average fees that 401(k)
participants incurred for investing in equity, hybrid and bond mutual funds
dropped in 2016 for the seventh straight year, according to the latest study by
the Investment Company Institute.

Morningstar also recently reported record
low fees for U.S. open-end mutual funds.

The ICI study found that for equity mutual funds, 401(k)
plan participants incurred an average expense ratio of 0.48 %, compared to 0.51
% in 2015. The average expense ratio that 401(k) plan participants incurred for
investing in hybrid mutual funds fell to 0.53 % in 2016, from 0.54 % in 2015.
And the average expense ratio that 401(k) plan participants incurred for
investing in bond mutual funds fell to 0.35 % in 2016, from 0.38 % in 2015.

The same study also concluded that people invested in mutual
funds through 401(k) plans generally hold lower-cost funds. Mutual funds take
up a major portion of the 401(k) investment world accounting for nearly $3
trillion of the $4.8 trillion in plan assets as of year-end 2016, the ICI
finds.

This is important to plan sponsors considering the industry’s
heightened scrutiny of fees which have been center stage in recent litigation
involving retirement plans. The Department of Labor (DOL)’s fiduciary
rule undoubtedly puts an even stronger focus on fees when it comes
to advisers recommending funds for sponsors to include in 401(k) plans.
However, fees seem to have been following a downward trend for more than a
decade.

The ICI finds that since 2000, expense ratios that 401(k)
plan participants incurred for investing in these funds have decreased 36%.

“This downward trajectory, which is a boon to retirement
savers, is driven by competition among funds and investors’ keen awareness of
fees, among other factors,” says Sean Collins, ICI’s senior director of
industry and financial analysis.”

ICI uses asset-weighted average expense ratios to represent
the price to invest in these funds.